In May of 2024, a massive electrical blackout darkened 21 of Mexico’s 32 states, underscoring the need to bolster energy infrastructure for the nation’s weakening power grid that is increasingly reliant on natural gas.
Since more than half of the generation south of the U.S. border is natural gas-fired, it is not surprising that in May this year – a year after the blackout – Mexico is welcoming the 1.3 Bcf/d, 444-mile Southeast Gateway offshore pipeline project scheduled to enter commercial service this year, according to its sponsor Canadian-based TC Energy Corp.
The national energy giant, Petroleos Mexicanos (Pemex) has a lot more infrastructure projects on the drawing board, particularly in the energy-starved south, but the challenges of those projects are many and varied causing some Mexican energy analysts to be skeptical Construction of the Villa de Reyes-Aguascalientes-Guadalajara gas pipeline, the last section to complete the Wahalajara system. (Photo: SICIM) varied, causing some Mexican energy analysts to be skeptical.
It is an understatement to say that Mexico continues to be a conundrum from an energy standpoint, increasingly a major importer of energy despite having significant onshore and offshore resources domestically.
Now that it is stressing electrification over upstream oil and gas production, it continues to bypass some significant economic multipliers and foreign investment that could come from developing more of its own oil and natural gas supplies, according to Ken Medlock, senior director of energy studies of Rice University’s Baker Institute of Public Policy in Houston.
Mexico’s energy import dependence is entirely a situation created by the nation’s own leadership, Medlock said. “This is not due to lack of resources; it is entirely due to above-ground issues that make investment largely unattractive for the private sector,” he said. Pemex has not demonstrated the fiscal or technical ability to sufficiently invest and develop the domestic resource base.”
And that in turn impacts ongoing and future infrastructure development. “International capital is mobile, and the investment environment in Mexico is just not as attractive as in other places, so investment is not flowing into Mexico,” Medlock noted.
“We see this in the trends for production as oil continues to decline. U.S. gas imports have reached record highs. All of this despite resource assessments that indicate untapped potential [remains in Mexico].”
In late May, S&P Global Energy Insights reported on several Pemex gas supply projects to the energy[1]deprived south region. Theoretically, the projects can help expand industrial development, including two small LNG projects, but S&P analyst Sheky Espejo thinks the vision faces a lot of challenges.
The LNG sites would be: one in Coatzacoalcos, Veracruz, and another in Salina Cruz, Oaxaca, Mexico. The Mexican government has a strategy to industrialize the southeast parts of the country, which the TC Energy underwater coastal pipeline is part of, separate from plans for additional Pemex gas supplies, according to officials in the Pemex CEO’s office cited in the S&P report.
They outline a strategy in which Pemex provides an anchor user in the region to develop long-needed gas infrastructure, rather than merely acting as a producer or marketer of gas. Venezuelan-born Francisco Monaldi, Latin American energy program director at Rice’s Baker Institute, has been following developments in Mexico, and is expecting a spurt in development south of the border based on modeling done at the university center.
He is focused this year on the Sempra Energy Pacific Coast export project on the Baja California peninsula, involving France’s Total Energies SE as a partner. “It took longer than expected because the supplying pipeline had to be re-routed for environmental concerns, but it is going to be ready soon [that is TC Energy’s North Baja Pipeline running 80 miles through Arizona and California to the Mexico border],” Monaldi said.
“This is a very important project because it opens up a new avenue for U.S. gas to be exported to Asia.” Sempra’s project is also important because it could lead to other Mexican Pacific Coast projects, with possibilities for bringing more Texas gas from the Permian to the Mexican coast for export, he notes. “This is a very big deal.”
In 2024, Mexico became an LNG exporter for the first time with New Fortress’s Altamira floating LNG, in Mexico’s Gulf coast, with a capacity of 1.4 mtpa to export gas coming from the United States. Mexico now is a net exporter of LNG (although it still imported about 0.7 mtpa of LNG in 2024). After some delays and cost overruns, a key project, Energia Costa Azul (ECA) on Mexico’s Pacific coast, is close to first production. Owned by Sempra (and Total), it holds a 3.25 mtpa LNG export train. “This project inaugurates what can become a significant new route for U.S. gas to reach Asian markets,” Monaldi said.
He added that Rice’s world gas trade model is “long-term bullish” on LNG projects on Mexico’s Pacific coast. “Despite the regulatory risks that have characterized Mexico’s energy policy in recent years, LNG export projects have some tailwinds,” Monaldi said. “They have robust market fundamentals, relatively low gas diversion risks, and aligned interests with the Mexican government, as state-owned utility, Comision Federal de Electricidad (CFE), is an equity partner.”
There are two other projects in the pipeline: Amigo (4 mtpa) and Mexico Pacific Saguaro (3 x 5 mtpa trains). Short term challenges to their final investment decision approvals include concerns about U.S.- Mexico relations and regulatory delays, which have undermined financing efforts, according to Monaldi.
“Eventually, these challenges should be overcome, and some projects will reach FID,” Monaldi said. “In fact, there are a few other projects under evaluation.” San Diego-based Sempra Energy, a utility holding and energy infrastructure company with a focus on both sides of the U.S.-Mexico border, has continued to champion the opportunities south of the border, particularly its gas pipeline and LNG export projects. Sempra Infrastructure’s Mexican affiliate, IEnova operates in multiple sectors in Mexico.
Included are both gas distribution facilities and power generation. For the holding company, however, there is a caveat regarding Mexico as it is selling some of its distribution and other assets in favor of concentrating investment in its massive utilities in California and Texas and its LNG export business. “We continue to be bullish on utilities at this point in the investment cycle. Most people are surprised to Construction of more gas pipeline mileage in Mexico. know that utilities have outperformed the broader market since early in 2000,” Sempra CEO Jeff Martin told CNBC’s “Mad Money” commentator Jim Cramer during an outlook on Sempra’s prospects for 2025.
Martin sees a “robust” array if capital projects, including Mexico. “Today, we believe utilities are in a super cycle — with future projected growth trending higher than the historical sector average. We’re benefiting from it at Sempra and have a portfolio of new growth opportunities across the energy value chain,” he said.
“With higher expected growth, a strong dividend and an expectation of a lower interest rate environment, we continue to anticipate a lot of value creation ahead for our shareholders.” This spring, Southeast Gateway was wrapped up after less than three years of development and construction with that national government’s electricity provider CFE as the TC Energy project’s only customer. “It is complete and ready for service,” TC Energy’s CEO Francois Poirier said in May on a first quarter earnings conference call with financial analysts. “And it was delivered 13% below our original budget.”
The multibillion-dollar, large-diameter offshore transmission pipeline has a 30-year contract with CFE and received the go-ahead to begin service from Mexican regulators at the end of May. “We continue to have strong alignments with President Claudia Scheinbaum Pardo regarding her 2030 plan that aims to attract more than $270 billion in U.S. investments, with a substantial focus on energy infrastructure,” Poirier said. Poirier calls the Southeast Gateway project “a critical component” for the Mexican president’s plan that envisions 14 new gas-fired power plants in Mexico.
Ten of those plants fit within TC Energy strategic areas. Generally, analysts were interested in how much headroom there is on TC Energy’s projections for $6 billion to $7 billion in annual capex in the near future. This year there will be up to $8.5 billion in new assets, according to the CEO. But going beyond $6 billion annually will depend upon the company’s ability to appreciably add to its human capital, Poirier noted. When it does go above, it will likely be later in this decade, he said.
Observers and market participants have told various market-watchers that they continue to see plenty of business opportunities should gas be finally available for industrial users in the Southeast. However, they note that some of the projects have been proposed before, and much more needs to be done for them to come to fruition.
Operators in the region see two main issues with projects in the Coatzacoalcos area – gas availability and quality. Insiders indicate that there is limited gas availability in the area, and the small amounts that are present are contaminated with nitrogen and require cleaning. The Coatzacoalcos region receives gas from Pemex facilities located in Cactus and Ciudad Pemex.
According to S&P Global Commodity Insights, average production in the Cactus processing complex is almost 450 MMcf/d, while at Ciudad Pemex, it is 440 MMcf/d. 250 MMcf/d are sent to the Yucatán Peninsula through the Mayakan system. Industrial demand in the broad southern region, which includes Oaxaca, Puebla, Guerrero, Chiapas, Tlaxcala and Veracruz, is roughly 280 MMcf/d. While Sempra and TC Energy have both been long-term successful players in Mexico, Rice’s Medlock is not sure the overall environment controlled by Pemex is inviting to foreign investors and operators.
He thinks the overreliance on Pemex may be misplaced. “There is an emphasis on the ‘national champion’ [Pemex] that is debilitating to the ability to generate sufficient returns on investment by private sector firms,” Medlock said. “There is also an emphasis on expansion in the power generation sector that has been heavily focused on renewables and natural gas. Even so, with natural gas it still makes more economic sense to import from the United States.” This is unlikely to change absent the appropriate framework to attract private capital into the upstream in Mexico.
“The irony is that a more open investment environment could stimulate development, expand the tax base, and create jobs,” Medlock added. “It just needs to be competitive in the international capital market. But the [Mexican] federal policy has shifted dramatically away from this mindset over the past few years.” LNG exports and domestic electricity load from data center development are driving today’s major gas infrastructure projects that include: Centauro del Norte pipeline, a joint venture between Grupo Carso and CFE, extending the existing Samalayuca-Sásabe pipeline, bringing Permian Basin gas to power plants in Baja California, beginning with a 47-mile, 36-inch first phase that should be finished construction the end of 2025, and a 227-mile second phase is expected to be ready in 2027 Tula-Villa de Reyes pipeline owned by TC Energy subsidiary Transportadora de Gas Natural de la Huasteca, connecting a 261-mile, 886 MMcf/d pipeline to the Tuxpan-Tula and Villa de Reyes[1]Aguascalientes-Guadalajara pipelines, providing gas to new power plants Sierra Madre, part of the larger Saguaro Energía LNG project, is a 497-mile, 48-inch, 2.8 Bcf/d capacity pipeline planned to transport gas to Puerto Libertad in Sonora, though construction is yet to begin as a number of regulatory issues have arisen.
Identifying the five biggest ongoing oil pipeline projects in Mexico is difficult because the searches yielded mixed results focusing on both oil and gas, as well as field development projects that may or may not include significant pipeline infrastructure for oil specifically. However, these projects involve notable investments and infrastructure development currently in Mexico’s energy sector: Trion is an 87-mile subsea pipeline to connect to the South Texas-Tuxpan gas pipeline.
While mainly an oil field development in ultra-deep water, this reflects the complex infrastructure required for such projects, even if the primary focus is on oil extraction. It is expected to begin operating in 2028.
Zama is another significant oilfield development with a detailed plan that includes a 42-mile subsea pipeline, although the exact details about their role in oil transportation are less clear. Pemex in April this year asked the National Hydrocarbons Commission (NHC) for approval jointly with the companies participating in the Zama Unit – Wintershall Dea, Talos Energy Inc., and Harbour Energy plc. – to drill up to 46 wells off two offshore platforms as well as transport the oil and gas produced to the Unit’s new onshore facilities at the Dos Bocas Marine Terminal.
Ixachi is an onshore gas field development that involves ongoing construction aiming to increase daily production, although it’s not necessarily considered a major pipeline project specifically. In March this year, business reports from Mexico indicated that Pemex is in talks with companies owned by billionaire investor Carlos Slim about an investment in Ixachi. President Claudia Sheinbaum Pardo eventually substantiated the reports.
The two sides were considering a mixed contract in the onshore field and a joint operating agreement in the deepwater Zama offshore Gulf play. While Mexico’s energy script is still only half written, there are still many characters, plots and subplots to be uncovered. It will take more time, but given current developments – politically and commercially – what unfolds is sure to be interesting and thought-provoking.
